Sheila C. Bair buys and sells Wa-Mu and wachovia in a weekend ... busy and very clever lady

Sheila C. Bair is the very savvy, smart lady who has run the Federal Deposit Insurance Corporation (FDIC) since June 26, 2006.

She took the time to call us overnight to tell us that Citigroup will acquire the banking operations of the Wachovia Corporation, and it wold be announced by the FDIC today. Citigroup will pay $1 a share, or about $2.2 billion.

Sheila said the agency would absorb losses from Wachovia above $42 billion and that it would receive $12 billion in preferred stock and warrants from Citigroup in return for assuming that risk.

“Wachovia did not fail,” Sheila explained, “rather it is to be acquired by Citigroup Inc. on an open-bank basis with assistance from the F.D.I.C.”

Citigroup will acquire most of Wachovia’s assets and liabilities, including $400 billion in deposits and will assume senior and subordinated debt of Wachovia.

Wachovia Corporation will continue to own the retail brokerage firm AG Edwards and the money management arm Evergreen.

The move was necessary, Sheila said simply to avoid serious fallout on economic conditions and financial stability.

“This morning’s decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury,” Sheila told us on a crackly lione from Washington. “This action was necessary to maintain confidence in the banking industry given current financial market conditions.”

This leaves us now with three big (VERY BIG) Americans’ bank's taking in deposits :

Bank of America,
JPMorgan Chase
Citigroup

Cui bono indeed.

Together, those three will dominate the industry, with unrivaled power to set prices for their loans and services. Given their size and reach, the institutions should probably come under greater scrutiny from federal regulators.

History shows that Wachovia was badly hurt by its unwise take over in 2006 of Golden West Financial, a California lender specializing in so-called pay-option mortgages.

The bank also faced mounting losses on loans made to home builders and commercial real estate developers, and its acquisition of A. G. Edwards, a retail brokerage firm, turned out to be problematic.

In June, G. Kennedy Thompson, the bank’s longtime chief executive joined the list of unemployed.

Sheila was fresh from explaining on TV the details of how the FDIC also came to help in the "rescue" of the nation’s largest savings and loan, Washington Mutual, which they "seized" the bank and sold on to J P Morgan Chase.

Robert K. Steel, a former top lieutenant of Henry M. Paulson Jr. at both Goldman Sachs and then the Treasury Department, who took over as Wachovia’s chief executive in July, arrived in New York to handle the negotiations in person, along with David M. Carroll, the bank’s chief deal maker. At 8:15 am. on Saturday, Citigroup and Wells got to look at Wachovia’s books.

Regulators pressed the parties to move quickly. Senior officials at the Federal Reserve in Washington, and its branches in New York, Richmond and San Francisco held weekend discussions with all the banks involved. Top officials at the Federal Deposit Insurance Corporation and the Treasury were also in the loop.

Timothy F. Geithner, the president of the Federal Reserve Bank of New York, personally reached out to executives involved in the process to assess the situation and spur it along. Citigroup and Wells pressed regulators to seize Wachovia and let them buy its assets and deposits, as JPMorgan did with WaMu.

A wider world would beneit from learning more about Sheila and her critical role in the re-shaping if the NY financial universe.

It will soon become evident that her fast, direct action - lubricated by the bro ha ha in Washington has had a wider and successful impact than the Hank and Ben End of the World Show now playing to packed houses on the Hill.

Asto the 104 pages of what has now landed on lawmakers desk snd known as a National Stability Bill ,hich has mushroomed from Hank's original 3 page demands we will leave until alter date . If and when it passes into law.